Tag Archives: value

Implications, Philosophy

Cheating in a tokenized world

I recently came across an excellent lecture given by Dan Ariely at Google. His topic was behavioral economics and the ways in which human decisions are influenced by outside conditions. Of particular interest is a part of the discussion that deals with cheating behavior and the use of tokens. For proper context, I recommend watching the entire lecture but the truly relevant part begins at about 41:56 (see quotation below).

Authors@Google: Dan Ariely

According to Dan’s research, humans are less likely to cheat with money directly than they are to cheat with things once or twice removed from money. When students were given the opportunity to lie about an amount of earned tokens instead of money, the degree of cheating doubled.

In Dan’s own words:

For me this is perhaps the most worrisome experiment of all we got because we are moving to be an economy that is not about money; it is about things that are at least one step removed from money. Think about a CEO who is back-dating their stock options. It’s not money, it’s stocks; it’s not stock, it’s stock options. It’s not asking for more, it’s just changing the date a little. Could it be that somebody who would never imagine stealing $100.00 from a petty-cash box could nevertheless very easily back-date their stock options and still feel honest about their overall behavior. I think the answer is absolutely yes. Could it be that when people cheat on Paypal and other things that are a step removed from money (credit-cards) it is actually easier for them to be (to feel) honest and at the same time cheating.

So what happens when we take a step away from money but in the other direction. Rather than abstracting money to something else, like tokens or stocks, what if we test the human willingness to cheat with respect to something of immediate value rather than after it has already been abstracted into money?

Dan said that stealing is more common when we take a step away from money and his examples only are in the direction of more, rather than less, abstract forms of value. But how would the likelihood of cheating change if we went from money to something more immediately valuable? Would we experience an increase in cheating, just as when going beyond money, or would be find that cheating was actually less? Would we find that money is itself one step removed from real human value?

Dan is a scientist and clearly states that we need to do experiments to determine these sorts of behaviors. They can not be intuited. Someone needs to initiate a comparable experiment where actual value was one of the experimental controls. Could we imagine an experiment similar to the test-taking scenarios that Dan outlined, but in which payment was not in the form of money, but rather in something of intrinsic value to humans – candy perhaps? Is the Coke experiment already an answer to this question?

The real question here is whether the use of money as an abstraction of value has already created a tendency for humans to cheat – a tendency that might be repaired somewhat by a civilitic model in which people’s rewards are more closely tied to the more-real value (the contribution) of their actions.

Philosophy

Economics and civilitics – a philosophical difference

In an effort to understand exactly how civilitics is different from exchange economics, it is useful to compare and contrast the two in various ways. While they are similar in the sense that both provide a basis of provisioning our lives, they are very different in how that end is accomplished.

The basic philosophical difference: exchange economics and civilitics both depend upon human self-interest to create what is best for one’s own situation. However, where exchange economics encourages an exclusively selfish motivation, sometimes manifested as greed, civilitics creates an implicit motivation to frame self-interest in terms of a contribution to the public benefit.

  • Exchange economics is based upon an abstraction for the value of things so that they can be exchanged between people in a meaningful way. At its core, exchange economics establishes a financial balance-sheet for individuals who then exchange their wares in a market economy to obtain the things they need. Economics can be characterized by the question, “What’s in it for me?”
  • Civilitics is based on the abstraction of public benefit so that additional contributions can be apportioned between people equitably. It is not based on any kind of explicit exchange. Civilitics expects people will freely give to society by rewarding those who are seen as providing the most value. In turn, this is a way to demonstrate one’s own contribution to society. Civilitics can be characterized by the question, “How can I create the greatest public benefit?”

Generalizations and inherent assumptions: Exchange economics and civilitics are both guilty of abstracting value in a uni-dimensional, scalar way. That is to say, they both assume that a single number can be used to assign relative value to very complex and varied things.

  • Exchange economics assumes that goods and services (materials and work) can be measured in the same units of value; that food and land can be measured in the same units of value; that work to build something up and work to tear something down can be measured in the same units of value. We pay money for all of these things and we are so accustomed to the concept that we do not even question whether it makes sense. Is it reasonable that food and demolition are measured in the same units?
  • Civilitics assumes that all human activity has relative merit. It supposes that the activity of one person can be compared with a different activity by another person and can be judged as having more or less value to the world or society. Not unlike exchange economics, civilitics assumes that the act of a person in providing care to another can be compared with the act of a person building a device or with a person performing art; with person pursuing some kind of educational goal; even a person destroying a building. Conceivably, various aspects of contribution could be broken into different dimensions of value (vectors), such as the value of serving others, the value of art, the value of self-improvement, and so on. But in its simplest form, like exchange economics, civilitics makes no effort to distinguish between these disparate things.

The basic challenge: Exchange economics has had many thousands of years to reinvent and optimize itself. Originally only a system for barter, it has become the trans-national electronic bank that drives world commerce. In doing so, it has needed to overcome many challenges. Civilitics has never before been abstracted beyond the family or tribe and it has not been optimized to the same extent as exchange economics. Consequently, it has some significant maturity challenges to overcome.

  • Exchange economics has overcome many hurdles. For one thing, exchange economics has needed to address the problem of assigning value to things for which a realistic value can not truly be assigned – like love, human life, freedom, and dignity. What are correct monetary values for these things? With the advent of fiat money, governments have needed to address issues of hyper-inflation, economic depression, trade deficits, and other instabilities in an effort to provide for the general welfare of their people. Of course, money has long had the intrinsic trouble of theft, embezzlement, extortion, and bribery.
  • Civilitics, at the outset, requires a wide participation from a diverse group of people who will take care to make reasonable and informed decisions. Unlike exchange economics, where value in the market can be set by experts, civilitics is based upon the ongoing assessment of billions of decisions by millions of people. The greatest early challenge for civilitics is simplifying the system sufficiently that it can be executed easily and effectively.

Overhead cost: Exchange economics and civilitics both require significant overhead when implemented across society to accomplish the objective of provisioning people.

  • Exchange economics is based in money, so when governments need to do some activity for the public good, a project can be funded by taxes, assessed upon income, property, luxury spending, sales revenue, licensing fees, or in other ways. In the United States, we have a term called tax freedom day, which is “the day when the nation as a whole has earned enough money to pay off its total tax bill for the year.” In 2012, that day was calculated to be April 17. That is to say Americans worked three and a half months of 2012 (almost 30% o f the year) just to pay for government overhead and programs.
  • Civilitics does not know money, so government programs in a civilitic system are run just as any other business in the interest of doing the greatest good. Government employees would not receive a paycheck. Instead, they are rewarded for contributing to society, just as everyone else. However, there is still an overhead cost in the civilitic system, which comes in the form of the time spent by people in assessing the contributions of others.

The following allegory shows how Heaven and Hell might be exactly the same – only different. In a similar way, exchange economics and civilitics are very much the same – only different.

Thoughtful cherubs

Credit: Bert Kaufmann

I once ascended to the firmaments. I first went to see Hell and the sight was horrifying. Row after row of tables were laden with platters of sumptuous food, yet the people seated around the tables were pale and emaciated, moaning in hunger.

As I came closer, I understood their predicament. Every person held a full spoon, but both arms were splinted with wooden slats so he could not bend either elbow to bring the food to his mouth. It broke my heart to hear the tortured groans of these poor people as they held their food so near but could not consume it.

Next I went to visit Heaven. I was surprised to see the same setting I had witnessed in Hell – row after row of long tables laden with food. But in contrast to Hell, the people here in Heaven were sitting contentedly talking with each other, obviously sated from their sumptuous meal.

As I came closer, I was amazed to discover that here, too, each person had his arms splinted on wooden slats that prevented him from bending his elbows. How, then, did they manage to eat?

As I watched, a man picked up his spoon and dug it into the dish before him. Then he stretched across the table and fed the person across from him! The recipient of this kindness thanked him and returned the favor by leaning across the table to feed his benefactor.

I suddenly understood. Heaven and Hell offer the same circumstances and conditions. The critical difference is in the way the people treat each other. I ran back to Hell to share this solution with the poor souls trapped there. I whispered in the ear of one starving man, “You do not have to go hungry. Use your spoon to feed your neighbor, and he will surely return the favor and feed you.”

“You expect me to feed the detestable man sitting across the table?” said the man angrily. “I would rather starve than give him the pleasure of eating!”

– From Allegory of the long spoons

 

Philosophy

Negative interest

In physics, we build models to represent the real world. We find equations to describe falling objects, cooling bodies, and collapsing stars. The equations are really just mathematical models, and when the equations accurately predict the behavior of something, we feel like it has been correctly modelled; at least until we find out differently.

A number of years ago, I spent a great deal of time investigating the true nature of value, aside from modern economic conceptions of the word. Of particular note is that people commonly equate value with money. Yet, if these two really are equivalent, then it follows that the way we model money – the equations we use – should also correctly apply to our observation of value. So what is the evidence for this?

Does money really grow?

Does money really grow?

First, let’s consider the summation of money and value. If you begin with twenty dollars and someone gives you another twenty dollars, I think we would all agree that you now have twice the money. But let’s contrast that with something that is not money. If you have a reserved seat on a flight from London to New York, that will have a certain value for you. If someone gives you another seat on that same flight, in most cases your value would not considered to have doubled.

Second, let’s look at the behavior of money and value over time. The financial equations that deal with interest rates, dividends, and account balances do a very good job of modelling money – by definition – but do they correctly model the nature of value? Looking at the equations governing compound interest on money in a bank account, we will use the following formula for continuously compounded interest :

P = C e rt

In this equation, P is the resulting value, C is the initial deposit, e is the natural logarithm (a mathematical constant), r is the interest rate, and t is the time over which the interest accrues. For a positive interest rate over a positive time period, the resultant amount of money will always be larger than the initial deposit and it will grow exponentially over time.

Value decreases over time

Value decreases over time

But does this equation really represent how value in the world of “things” behaves? Let’s consider some simple examples: If you have an apple and you “bank” it in your refrigerator for a month or two, does the resulting apple have a value greater or less than the initial apple? If you have an automobile and bank it in your garage for a few years, does it have more value when you come back to withdraw it? How about books, or furniture, or clothing, or tools? Does the value of such things go up or down with time? Although there are a few exceptions, such as a vintage bottle of wine or a classic automobile, just about everything loses some or most of its value over time.

The point here is not to say that banks have it wrong. Banks handle money exactly the way we expect it to be handled. The point is simply that money should not be confused with value. They are two very different things and they do not behave in the same ways, nor should they be expected to do so. Any system that correctly models value will show a depreciation over time, dwindling to an ever smaller value. As a result, the above equation only begins to model value when the interest rate is negative.